Mayor: Credit ratings show flawed system

Afflerbach : It'll take at least two years to fix inherited budget woes.

March 09, 2004|By Romy Varghese Of The Morning Call

Allentown Mayor Roy C. Afflerbach tried to use grim reports by two credit rating agencies to his advantage Monday, saying they show that the city's financial structure has been flawed for years.

On Friday, Standard & Poor's Rating Services lowered its rating on city bonds three notches to A-. Moody's Investors Services, another credit rating firm, downgraded its rating to Baa2.

The lower the credit rating, the more expensive it is for the city to borrow money. S&P also issued a "negative outlook" for the $68.4 million in general obligation bonds the city plans to issue.

Afflerbach tried to minimize the S&P downgrade, saying Bethlehem has had the same rating for years. But Bethlehem has a "positive outlook" for its bond issues, according to that city's business administrator, Dennis Reichard.

Afflerbach also said Allentown would have no difficulty getting bond insurance and selling the bonds. He expected a lower rating because S&P hadn't rated the city since 1999, he said.

But S&P had issued a rating in April 2003, downgrading the city's bonds to AA- from AA and giving a "stable outlook." Analysts at the time did not have an audit of fiscal year 2002 and relied on information supplied by city officials, said S&P analyst Jeffrey Panger.

But a subsequent review of the audit revealed that at the end of 2002, the city's surplus had been cut 56 percent from what it was at the end of 2001, he said.

"All of a sudden, we see a financial situation substantially worse for the city," Panger said.

Echoing comments he made to City Council last week, Afflerbach, who began his term in 2002, said that years of flawed budget forecasting and budgeting more for expenditures than the city received in revenue created the city's situation. It will be a two-year project to correct these issues, he said.

Though Panger called the deterioration of the city's financial condition "an accumulative thing," S&P noted Friday that measures to address the city's structural imbalance have not been fully implemented. Allentown ended 2003 with a deficit of $2.7 million, S&P said.

But Afflerbach said Monday, "The city is not operating in the red."

The mayor reiterated his goal of cutting $6 million this year to avoid a deficit crisis. Programs likely to be cut are those primarily funded by the city, rather than the state and federal governments.

But Afflerbach said those programs are few. He said the city must maintain public safety, which runs the gamut from health to building inspections.

Layoffs, which city Controller Frank J. Concannon have deemed inevitable, may be an option later in the year, Afflerbach said.

"That will have to be a real consideration," he said.

S&P called steps such as reducing expenditures "one-time adjustments and [they] do not fully address the city's structural imbalance."

Because of the "negative outlook" designation, S&P will evaluate Allentown at least annually, Panger said.